You can’t predict in general, but you can predict that those who rely on predictions are taking more risks, will have some trouble, perhaps even go bust. Why? Someone who predicts will be fragile to prediction errors. An overconfident pilot will eventually crash the plane. And numerical prediction leads people to take more risks.
Ideas, [Mike Jones, an engineer at Google] explained, were like babies — everything about their environment said they shouldn’t exist. But they do. You can’t dwell on problems too early, or they will swamp the virtues and you will decide not to do the project.
Never let the fear of striking out get in your way.
[Image by buschap licensed under Creative Commons.]
Masters and the rest of the IDM team knew that in the world of swaps, techniques had been found to separate out, as a derivative product, parts of the risk attached to bonds – say, the risk that interest rates would rise and lead a bond’s value to fall. Derivatives traders had been able to sell that risk as a product to investors who were willing to bet that interest rates would not actually rise. The bondholder, with the bank acting as broker, was in effect able to sell the risk of the bond to another, less risk-averse investor. So what would happen, Masters asked herself, if the same principle were applied to the default risk associated with a loan? Doing so would overturn one of the fundamental rules of banking: that default risk is an inevitable liability of the business. If a technique could be developed to package default risk so that it could be traded, that would be an enormous boost for banking in general.
In sharp contrast with others, we are ready to take risks and to calculate the risk. Others are brave in the dark; thinking would just slow them down. But the truly brave are those who face danger undeterred by full recognition of life’s terrors and it’s delights.